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ECB Minutes Show Policymakers Less Confident About Eurozone Recovery

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European Central Bank policymakers acknowledged that they were less confident regarding a return of solid growth in the euro area in the second half of the year, minutes of the April 9-10 policy session showed on Thursday.

While the more protracted "soft patch" suggested by the latest data remained consistent with this baseline scenario, "it was acknowledged that there was now somewhat less confidence in this baseline scenario and that the range of other possible outcomes had widened," the minutes, which the ECB calls "account", said.

"More information would need to be gathered in the run-up to the Governing Council's June monetary policy meeting, when new Eurosystem staff projections would become available."

Policymakers acknowledged that some recent data had turned out even weaker than expected, the minutes said.

"Downside risks, from Brexit and the threat of protectionism in particular, had the potential to further affect confidence and negatively spill over to activity," they said.

They agreed that the balance of risks surrounding the euro area growth outlook remained tilted to the downside.

After the April policy session, ECB President Mario Draghi said the bank stood ready to deploy more policy tools, if needed, amid a weaker growth outlook.

Regarding the negative deposit facility rate, policymakers pointed out its contribution to increased lending volumes across all loan categories.

Markets widely expect the bank to announce some relief measures in June, such as a tiered deposit rate that can partly reduce the burden of the cost banks pay on the cash they park at the ECB.

However, ECB policymakers are wary of a tiered deposit rate as they fear it could signal that interest rates are going to remain low for a long time.

The new forward guidance issued in March suggest the bank expects the first interest rate hike since the financial crisis to take place in 2020.

Eurozone interest rates were raised last in July 2011, by 25 basis points.

The new series of targeted longer-term refinancing operations, or TLTRO-III, announced in March, is set to start in September and end in March 2021, thus with a maturity of two years.

ECB rate-setters proposed that the pricing of the new TLTRO-III operations should be data-dependent and should consider a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook.

While some argued for pricing the new operations so that they would primarily serve as a backstop, providing insurance in times of elevated uncertainty, others supported the view that the TLTRO-III operations should also be seen as a potential tool for adjusting the monetary policy stance, the minutes said.

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